Spring officially begins on March 20th. That’s one of the great dates of the year, as it signals the return of warmer weather and greater occupancy in RV parks. Of course, that depends on where your RV park is located. Some winter “snow-bird” properties hate the approach of summer as it signals customers returning to their northern addresses. But even then, Spring is a neutral period for the “snow bird” parks and nobody shows it any ill will. So how can you best prepare for the return of warmer temperatures and improved occupancy loads? For starters, it’s getting to be time for a good old-fashioned “spring cleaning” – the annual event in which you start removing all the vestiges of winter (leaves, sticks, etc.) and preparation for higher aesthetics (painting, road repairs, etc.). Personally, we find the Spring to be the happiest time of the year, as it’s a re-birth of all the goals for the RV park coupled with nice weather and happy interactions with customers. So here’s to a happy Spring season!
Memo From Frank & Dave
How RV Parks Are Perfectly Positioned For The Next U.S. Recession
In the Great Depression, St. Louis fared better than most cities for two reasons: 1) beer manufacturing and 2) shoe manufacturing (their motto was “shoes and booze”). These industries flourished during the Great Depression because beer was a vice that people could not live without and shoes were a necessity that people had to buy no matter what. Today, many economists predict that there is a good chance of a major recession in 2020. If that were to occur, many investment sectors – such as the stock market – would encounter huge losses. However, RV parks are more like St. Louis. Indeed, RV parks are properly positioned to be fine in a recession for a number of reasons.
A customer base that is not employment related for the most part
The biggest customer base of the RV park industry are Baby Boomers born between 1946 and 1964. A huge number of these are retired and roughly 10,000 more are retiring in America per day. People who are retired live on a mixture of social security, savings and pensions. They don’t care if America is hiring or laying off, as they don’t go to the office ever again. In this way, a huge portion of the RV park demand is completely immune from the economy, period.
A solution more than a problem in economical travel
Of those still employed – or even those who are trying to be economical with their savings – RV parks are the less costly travel option. As a result, then people cut back they actually increase RV travel as opposed to traditional air and hotel journeys. This is true among all age groups that use RVs.
A necessity for those who already own an RV
The typical RV in the U.S. costs more than $50,000. After making that investment, users are not going to abandon their plan of vacationing in this asset. RV parks are the necessity when RVs hit the roads – they have to park somewhere. As a result, demand remains steady even in recessions as these RVs still hit the road.
An escape from tough realities for the customer
Stress is a normal byproduct of tough economic times. But people still have vacation time – and that’s devoted to get their lives back together. RV travel, in this manner, can serve as a much needed escape plan. Many stressed out workers will use their RV more in recessions than they do in good economic times.
Not all industries perform the same during economic recessions. RV parks are one of the fortunate few that do fine in hard times. And with over 10,000 Baby Boomers retiring per day in the U.S., this insulation from the reality of corporate success will do well for RV park owners in the years ahead.
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How To Get Seller Financing On Your RV Park Purchase
One of the great things about buying RV parks from moms & pops is the possibility of seller financing. When you buy a property from someone with debt on it, there’s no likelihood they can carry paper, since they do not own it free and clear. But RV parks typically have no debt obligations, and there is always the opportunity to obtain it if you know what you’re doing.
What is “seller financing” and what is it not?
Real “seller financing” is when the seller of the RV park creates a note at closing that requires a down payment of 10% to 20%, a fixed interest rate, a 25 or 30-year amortization, and a loan term of 5 to 10 years. That’s what a real bank would offer, and that’s what you need as a buyer. However, some moms & pops will offer “seller financing” that is just a year or two or requires 50% down payment or a similarly large amount, or a 10-year amortization. That’s not real seller financing. There’s no way that such an offering by the seller is helping you at all – you’ll probably end up losing your down payment with that arrangement and would be better off just cancelling the deal.
Understanding the benefits to the property owner
So why would a mom & pop match the terms of a conventional bank loan? What’s in it for them? Actually, there are many legitimate reasons for this being an attractive arrangement for the seller including:
- Significantly higher interest rate than they can get otherwise. Most seller notes, based on bank interest rates, are roughly 5% right now, while most Treasuries are paying out 2.5%. Remember that the stock market ended 2019 in the red, and bonds didn’t do much better.
- Superior tax treatment. The seller only pays tax on the principal as he receives it, so he actually earns interest on that which would have to immediately go to the IRS on a conventional cash sale.
- Better collateral than other investments they can make. When the seller carries the paper on their mobile home park, their collateral is the park itself – and asset they built from scratch and know very well. But when they own stocks and bonds, their collateral is just a bunch of paper in industries they know nothing about and have no control over.
- Faster closing with no surprises. When an RV park is purchased with bank debt there is always the uncertainty and potential delay of it sailing through the loan committee and the funds actually showing up for closing. When the seller carries the paper, there’s no risk of closing delay or failure and the seller can start making plans for their retirement immediately.
How to explain these benefits in a user-friendly way
Mom & pop sellers don’t typically react well to the hard-sell. Sometimes, the seller offers to carry the financing on the front end – sometimes it’s even clearly labeled in the prospectus from the broker. However, others may not have even ever heard of that option. So you have to approach the sellers just the right way as to not offend them or appear desperate, and to merely educate them on the concept so they can do their own diligence and come to their own conclusion.
Why it may take several attempts to succeed
If a seller has no considered this option before, you may have to bounce it off them more than once. Typically, you start off with a verbal question “have you ever considered the benefits of carrying the financing?” That can start the process. But you may also need to supplement that – a week later – with a written summary showing the actual net difference to them monthly by carrying the paper vs. using a bank loan to purchase. Normally, the difference in their monthly investment income is double by going the seller carry route. Some sellers need one additional refresher with “did you have a chance to look over that comparison I sent you on carrying the financing vs. using a bank to do it?”
Another option: offering to different prices
Still another way to create seller financing is simply to give the RV park owner two different price offers when negotiating the deal: 1) the cash price and 2) the seller financed price. Typically, the seller-financed price is significantly higher (maybe 2% to 5% of deal size). This is designed to steer the seller to carry the paper, but it’s actually a good deal for both parties, as the fees to get the bank loan (appraisal, property condition report, points, legal fees, etc.) are typically the same or more than the price difference.
Seller financing is an extremely attractive part of RV park investing. Don’t miss the opportunity without giving it a shot. These steps will get you off on the right foot.
The Best Way To Get A Larger RV Park Loan: M.J. Vukovich
When you are looking to buy a larger RV park ($2 million + in price), then there’s a better alternative than going to your local bank. M.J. Vukovich is one of the nation’s top capital consultants (also known as a loan broker) and he can build your loan package, present it to banks, get your selection, negotiate the final terms, manage the process to closing – and all at a small fee that is only paid upon performance. We’ve been using him for years and he saves more time and money than he costs, plus gets us access to the best loan products such as CMBS conduit debt.
For a free consultation, contact MJ at (612) 335-7740 and let him tell you what he can do for your property, or email him at [email protected].
Have You Checked Out The Prices Of Classic RV’s Recently?
We saw this advertisement for a 1963 Shasta Airflyte in Auto Trader recently. It’s only 16’ long and 56 years old yet is priced at $21,500 – which is more than many brand new models go for of the same length. So why are people starting to aggressively collect these older models? The answer is similar to those who collect classic cars. Indeed, the RV is a close cousin of the automobile – the RV cannot exist without its partner to pull it along. As car collecting has become a national obsession, it makes complete sense that RVs should be pulled into that arena. Another factor is scarcity. Many of these older RVs are very hard to obtain, and that yields greater collector interest. Regardless of the reason, it’s pretty cool to see classic RVs in the top-tier car collector magazines.
How Tiny Homes & Park Models Can Give A Revenue Boost To Your RV Park
RV parks are based on the concept of hosting owners of recreational vehicles on dedicated camp sites. However, there is a growing trend among RV park owners to add a new income stream in the form of park models. These roughly 400 sq. ft. structures can be put to a myriad of uses that all create additional net income for your property.
The whole concept of outdoor recreation, family bonding time, and cooking outdoors (currently ranked as the #1 item that RV park customers look forward to) is a hot topic with most Americans – but many of these do not own a recreational vehicle. Having park models allows them to arrive in their car and stay in the RV park just the same as those who own RVs. Additionally, many family reunions include members that do not own RVs and these park models give them the opportunity to participate, too. With these units renting for $75 to $200 per night (based on location) that’s a significant source of additional net income for your RV park.
Another option with park models is to rent them out to customers who want to live in your RV park seasonally or even year-round. This gives you some consistent, recurring income that you can count on to cover your mortgage and other fixed expenses. We drove through a northern RV park recently that was closed for the season yet had about 20 park-models rented on annual obligations that pay during even the winter season – that’s great income to defer costs during that period.
Better drive-up appeal boosts all revenue
Park models are normally – but not always – very attractive additions to most RV parks. In some properties they are, in fact, a real asset to drive-up appeal, and this positively impacts your customer attraction and retention, as well as future appraised value and buyer desire. That being said, be sure to carefully plan out which units to buy and where to place them for maximum effect. Some RV park owners have even utilized two-story units to give their property some extra sparkle.
Park models can be a real asset to many RV parks. That being said, they’re not cheap to buy, so give it plenty of discussion and consideration before you move forward. If you want to add some park models, add them a few at a time to make sure the demand is there and it’s working out like you planned. But in many cases, park models bring in solid net income and add some additional aesthetic features that benefit the value of the overall park.
In Praise Of The Picnic Table: The Most Adaptable Structure In Any RV Park
If there were MVP awards for RV parks, then the winner would probably be the lowly picnic table, as it probably gets more use and serves more purposes as anything else on the entire property. A swimming pool can entertain people for an hour, but a picnic table can do so for an entire day – and is not weather dependent. It treats all guests equally regardless of age and physical limitation. And its inexpensive to buy and cheap to maintain. So why is it so important?
Probably the most used item in any RV park
What can’t your customer use a picnic bench for? Its regular duties are massive.
A myriad of options to fit any budget and aesthetic desire
There’s probably no other RV park amenity that offers as many designs, construction materials, colors and price points. There’s wooden, plastic, metal, and recycled materials in every shape from classic to rounded. The least expensive options are around $300 – and that’s for a really well-built model with wooden top and seats and metal frame. This is an incredible value and has a lengthy life span.
So why don’t you install more?
A recent consumer study of RV parks found that picnic tables were ranked as one of the top six amenities on the property. That being the case, why not add more of these work horses to your property? You should have one on every lot, but also in green space areas and around other amenities like the volleyball court and even pool. We’re not sure you can actually have too many.
We’re not sure who invented the picnic table, but they were a genius as far as RV parks are concerned. Loan up on these little people-pleasers and your customers will be delighted.